This is in response to your letter requesting an opinion on the application of section 7(i) of the Fair
Labor Standards Act (FLSA) to a proposed commission-only pay plan of a client
of yours who operates a carpet and furniture cleaning business. Employees
perform these cleaning services on the customers’ premises. You state that at
least 75% of your client’s annual dollar volume of sales of goods and services
is with direct customers and is not for resale. You believe that under 29
C.F.R. § 779.441 your client qualifies as a retail or service
establishment for purposes of the section 7(i) overtime exemption. See
29 U.S.C. § 207(i) (copy enclosed).

Section 7(i) of the FLSA provides an exemption from the overtime pay requirements of section 7(a) for
“any employee of a retail or service establishment … if

the regular rate of pay of such employee is in excess of one and one-half times the minimum hourly
rate applicable to him under section 6, and

more than half of his compensation for a representative period (not less than one month) represents
commissions on goods or services.”

You believe that your client’s plan would
meet both of these compensation requirements, so your primary question is
whether your client’s carpet and furniture cleaning business may qualify as a
“retail or service establishment.”

First, with regard to the compensation requirements, you state that the employees in question will at all
times receive more than 50% of their income through commission payments. Therefore,
it appears that the pay plan would satisfy the percentage compensation
requirements at section 7(i)(a)(2). However, it is not clear whether the pay
plan would satisfy the regular rate compensation requirement at section 7(i)(a)(1).
You state that “[i]t has been projected that under the proposed plan, the
location crews could earn between $35,000 and $70,000 per year.” Yet, as you
also note, the regular rate requirement of section 7(i) applies on a workweek
basis. Averages of compensation for two or more weeks do not satisfy the
“regular rate” requirement of the retail or service establishment exemption. See
29 C.F.R. § 779.18 (copy enclosed). Therefore, you must assess the
applicability of section 7(i) on a workweek-by-workweek basis for each employee.

Second, with regard to your specific question, the FLSA does not define the term “retail or service establishment.” However, 29 C.F.R. § 779.411 (copy enclosed) adopts the definition in section 13(a)(2) (repealed) and 29 C.F.R. § 779.24 (copy enclosed). “Retail or service establishment” is defined in 29 C.F.R. § 779.24
(copy enclosed) as “an establishment 75 per centum of whose annual dollar
volume of sales of goods or services (or of both) is not for resale and is
recognized as retail sales or services in the particular industry.”
Furthermore, 29 C.F.R. § 779.313 (copy enclosed) summarizes the following
requirements:

must engage in the making of sales of goods or services and

75% of its sales of goods or services, or of both, must be recognized as retail in the particular industry and

not over 25 % of its sales of goods or services, or of both, may be sales for resale.

For more information on the “retail or service establishment” requirement, see 29 C.F.R. §§ 779.313 -.328. See also WH Opinion Letter November 9, 2004 (copy enclosed).

You state that you originally requested guidance from your local Wage and Hour District Office in St. Louis on
whether a carpet and furniture cleaning business can qualify as a retail or service establishment. That office responded by providing you WH Opinion Letter
July 30, 1984, which concluded that none of the provisions applicable to retail
or service establishments could apply to laundry and dry cleaning
establishments. You state that the same issue was also addressed in Reich
vs. Delcorp, Inc., 3 F.3d 1181 (8th Cir. 1993). The court in Delcorp
found that while Congress excluded laundries from the exemption contained in
FLSA section 13(a)(2) (repealed effective 1990), there was no such exclusion
from section 7(i). The Eight Circuit ruled that the exception contained in
section 13(a)(2) was not from the definition of “retail or service
establishment” but rather from the section 13(a)(2) exemption itself and thus
that carpet cleaners potentially could meet the definition of “retail or
service establishment” and qualify for the section 7(i) exemption. Delcorp,
like your client, was in the business of in-home carpet and furniture cleaning.
Because the Eight Circuit in that decision concluded that laundries may
qualify as “retail or service establishments” for the purposes of section 7(i),
and because your client does business in the 8th Circuit, you request
confirmation that your client may rely upon the opinion in Delcorp and
take advantage of the section 7(i) exemption.

29 C.F.R. § 779.318 (copy enclosed) lists various factors which determine whether an establishment
qualifies as a retail or service establishment. Such establishments

sell goods or services to the general public,

serve the everyday needs of the community,

are at the very end of the distribution stream and are not a part
of the manufacturing process, and

provide the general public its repair services and other services for the comfort and convenience of such public in
the course of its daily living.

Carpet and upholstery and cleaning services
meet all four of these requirements. They sell their services to the general
public. Carpet and upholstery cleaners do not manufacture their product and are
at the end of the distribution stream when they perform the cleaning process. Finally,
carpet and upholstery cleaning is provided for the comfort and convenience of
the public in its daily living.

Therefore, it is our opinion that carpet and upholstery cleaning establishments which launder, clean, or repair fabric or clothing, may fall within the definition of retail or service establishment and therefore qualify for the section 7(i) overtime exemption provided all of the other parts of the test are met. Additionally, as of this date we are withdrawing opinion letters dated July 30, 1984 and November 6,
1986 to the extent that these letters conflict with the position described above.

This opinion is based exclusively on the facts and circumstances described in your request and is
given based on your representation, express or implied, that you have provided
a full and fair description of all the facts and circumstances that would be
pertinent to our consideration of the question presented. Existence of any
other factual or historical background not contained in your letter might
require a conclusion different from the one expressed herein. You have
represented that this opinion is not sought by a party to pending private
litigation concerning the issue addressed herein. You have also represented
that this opinion is not sought in connection with an investigation or
litigation between a client or firm and the Wage and Hour Division or the
Department of Labor. This opinion is issued as an official ruling of the Wage
and Hour Division for purposes of the Portal-to-Portal Act, 29 U.S.C. § 259.
See 29 C.F.R. §§ 790.17(d), 790.19; Hultgren v. County of Lancaster, 913 F.2d 498, 507 (8th Cir. 1990).